5 Essential Steps of Estate Planning

A recent column about getting financially organized triggered many questions about estate planning. This is not just a subject for older people. Young families with children and mortgage payments are likely the least prepared and most vulnerable in case of an unexpected death of a parent or breadwinner.

Planning your estate does not require you to have a lot of assets. But protecting your family’s future — your home equity and your family’s ability to maintain their lifestyle in your absence — requires you to take some simple steps now to avoid the long and costly court procedure called probate.

Here are five things you should be doing now, before it all gets very complicated.

Step 1: Decide who gets what in case of your death. Make a list of your assets, your wishes for distribution of your assets, and the person(s) you will name carry out your wishes. These are the big decisions that no one can make for you, so don’t waste the lawyer’s time (and your money) figuring it out in the office.

Step 2: Meet with an estate planning attorney in your state of residence to handle this correctly. This is not a do-it-yourself project with documents found online. If you make a mistake, you won’t be around to correct it by the time it is discovered! Search for an estate planning specialist at the website of the estate planning bar. Ask about fees in advance. This process does not have to be expensive — and it will pay for itself in the future.

Step 3: Understand your options for legal structure. Basically you’ll have a choice of a simple will or a revocable living trust. The latter has some advantages. A will must go through the court-ordered procedure called probate before distribution of assets. It should cost about the same to create a revocable living trust, with yourself as trustee while you are alive and capable. If you die or become incapacitated, you will have already named a successor trustee who will not have to go to probate court to be empowered carry out your written instructions.

Remember, the trust won’t work if you haven’t retitled your assets in the name of your newly created trust. That includes your home, your savings accounts and any other valuable assets — but likely excludes your daily checking account and your personal car. You can always buy or sell or change the assets in your trust, and there are no additional tax consequences to renaming your assets into the trust.

Some of your assets will pass automatically and directly to your named heirs without any court procedure. If you own a home in joint tenancy with “rights of survivorship,” the home will go to your co-owner. But joint tenancy doesn’t solve the problem if you are incapacitated. If you have a retirement account or life insurance policy, your assets will go directly to the person you named as a beneficiary. (Be sure to update beneficiaries on all policies, so there are no surprises at your death.)

Step 4: Consider health care issues. This is especially important in case of an illness that robs you of your ability to make decisions. Choose a trusted friend or family member to assign a healthcare power of attorney. Also, make a living will to express your thoughts on aggressive treatment to prolong your life. Document your wishes around organ donation. Yes, these are unpleasant things to consider, but they are better resolved while you are competent to make those decisions for yourself.

Step 5: Consider your funeral wishes. Write them down and leave them in a place where they can be found before your will is read, which typically happens after the funeral!

A last word of advice: Follow up on your lawyers instructions. Sign the documents, change the asset titles, and let your family know where your documents can be located. Procrastination is the greatest enemy of estate planning. It can lead to heartbreaking and expensive consequences.